Recently, two separate New York courts (the First Department and the Southern District) issued decisions imposing sanctions upon litigants who failed to comply with preservation obligations. While a summary of those decisions and hyperlinks to the full decisions follow, attorneys should take heed that it is critical to timely and properly issue litigation hold notices when litigation is reasonably anticipated. Irrespective of whether we are practicing in State or Federal court, our obligations to preserve potentially relevant information are not to be taken lightly.
Appellate Division, First Department Upholds (and Modifies) Sanctions Imposed by Trial Court Because of Plaintiff’s Failure to Timely Issue Litigation Hold.
This decision, issued on June 28, 2016, by the Appellate Division, First Department discusses what sanctions are appropriate when a party fails to comply with its preservation obligations. Specifically, before the First Department was an Order of the Supreme Court, New York County (Carol R. Edmead, J.), which granted defendant’s renewed motion for spoliation sanctions, and dismissed plaintiff’s complaint. The First Department unanimously modified the trial court’s decision to dismiss the complaint and instead awarded defendant an adverse inference charge at trial as to the spoliated evidence.
The factual underpinnings of the lawsuit involve allegations of legal malpractice against defendant Herrick, Feinstein LLP (Herrick) in connection with Herrick’s representation of plaintiff in negotiating a high rise construction loan with a developer. The loan closed on May 8, 2007. After a series of mishaps, including permit revocations and a crane collapse at the construction site, plaintiff retained counsel in June 2008 in connection with its potential claims against Herrick. Thus, plaintiff’s obligation to preserve evidence arose at least as early as June 2008 (i.e., when it reasonably anticipated litigation). In May 2010 – almost two years later –plaintiff finally issued a litigation hold. As a result of this 23 month delay, plaintiff’s record destruction policies (including recycling of backup tapes, routine deletion of emails, and erasure of hard drives/email accounts upon an employee’s departure from the firm), went unsuspended until May 2010. Plaintiff ultimately commenced its malpractice suit in 2011.
In or about June 2014, Herrick filed a motion seeking dismissal of plaintiff’s complaint as a sanction for plaintiff’s failure to preserve evidence. The trial court found plaintiff’s failures constituted ordinary negligence, and granted Herrick’s motion only to the extent of directing that Herrick be entitled to an adverse inference at trial. Later that summer, plaintiff produced additional documents that identified various other custodians who likely had information relevant to the lawsuit. Plaintiff claimed that its failure to produce these materials earlier was inadvertent. In or about January 2015, Herrick moved to renew its spoliation motion, based on the new documents, including the identification of additional custodians, much of whose electronic records had been destroyed by plaintiff, either due to its failure to timely institute a litigation hold, or deliberately. Plaintiff cross moved for fees. Upon renewal, the trial court dismissed the complaint, and denied plaintiff’s cross motion for attorneys’ fees and costs. This appeal ensued.
The First Department found that the motion court properly granted defendant’s renewal motion but held the trial court’s decision to dismiss the complaint as a spoliation sanction was an abuse of discretion.
The Court noted,“[F]ailures which support a finding of gross negligence, when the duty to preserve electronic data has been triggered, include: (1) the failure to issue a written litigation hold ; (2) the failure to identify all of the key players and to ensure that their electronic and other records are preserved; and (3) the failure to cease the deletion of e-mail” (VOOM HD Holdings LLC v EchoStar Satellite, LLC, 93 AD3d 33, 45 [1st Dept 2012]). Thus, per prior decisional law, the trial court’s determination that plaintiff’s destruction was grossly negligent was upheld. However, the First Department found dismissal of the complaint an improper sanction. Specifically, the Court noted dismissal is warranted only where the spoliated evidence constitutes “the sole means” by which the defendant can establish its defense (Alleva v United Parcel Serv., Inc., 112 AD3d 543, 544 [1st Dept 2013]), or where the defense was otherwise “fatally compromised” (Jackson v Whitson’s Food Corp., 130 AD3d 461, 463 [1st Dept 2015]) or defendant is rendered “prejudicially bereft” of its ability to defend as a result of the spoliation (Suazo v Linden Plaza Assoc., L.P., 102 AD3d 570, 571 [1st Dept 2013] [internal quotation marks omitted]). Because the record before the Appellate Division demonstrated a massive document production and many key witnesses available to testify, an adverse inference charge was appropriate.
The full decision of the First Department can be accessed here: http://www.courts.state.ny.us/reporter/3dseries/2016/2016_05065.htm
The Southern District of New York Imposes Severe Sanctions Upon Village Due to Village’s Failing to Issue a Litigation Hold
In a separate decision from the Southern District, Judge Karas similarly imposed severe sanctions – an adverse inference and more than $40,000 in attorneys’ fees – against the Village of Ponoma for failing to timely issue a litigation hold. That decision, and my colleagues’ blog about that decision can be read here:
For more on this topic See Facebook Posts And Text Messages Result In Monetary And Other Sanctions Being Imposed Against A Municipality